Four Bank Tech Predictions For 2014

An uptick in cloud usage and continued innovation in the payments space are among trends we can expect to see next year.

If predicting the future were easy, everyone would get rich in the stock market. In the absence of true clairvoyance, however, it’s still worthwhile to explore what 2014 will look like and where banks will make technology investments. What makes 2014 different is that many of the technologies will reach maturity, giving banks nearly limitless new opportunities.

Technology platforms will power both risk management and the customer experience

Banks will continue to focus on risk but not at the expense of investing in innovation and the customer experience. The good news for banks is that the same technology that can power risk and fraud management – high-performing databases and in-memory computing – can also be used to innovate on behalf of the customer. In 2014, banks will more fully invest in and leverage those platforms and capabilities. They will perfect their use of granular analytics and begin harnessing the power of predictive analytics, becoming much more customer-centric – without losing sight of risk.

Mobility achieves a tipping point

This will be the year corporate mobile and online banking fully comes into its own. Banks are devoting more and more resources to front-end innovation that touches the customer, and the corporate customer is demanding an omni-channel experience. Seamless banking “from anywhere” will achieve a tipping point, so as omni-channel banking continues to grow in the retail channel, look for it to take off in the commercial channel.

Payments space continues to sizzle

The payment space will remain hot. Banks will make substantial investments in technology for payments and other e-commerce services. There will be a rise in solutions that power seamless corporate-to-bank connectivity and enhance treasury services. The biggest trajectory, however, will be in the payments and offers space for retailers where it’s simply too valuable an opportunity not to exploit. To drive market share, banks will be looking to develop innovative offerings that set them apart not only from other banks but also their non-bank competitors.

Huge uptick in cloud

The biggest change in 2014 will be the huge increase in spending on cloud computing technology as banks become more comfortable with the practice. Some banks will go with a private cloud and build it out themselves. Others will replace aging legacy applications with cloud alternatives, run either in a secure private cloud or a public cloud, depending on the sensitivity of the data in the system. As the cloud grows, investments in legacy systems will shrink. Banks will be focused on reducing the costs associated with hardware, infrastructure, and other legacy technologies that consume resources but don’t drive innovation.

The banking revolution – harnessing technology to bring customers closer – is already at hand. As they invest resources in the coming year, bankers have the opportunity to help lead the revolution and embrace the future of banking.

I think that the innovation that is happening in core systems appears to be coming from two places simultaneously - which your comment captures: The first is cloud solutions, which lower the barrier to entry; and the second is new entrants, who benefit from not having to transform long-standing legacy infrastructures and the organizational and process constraints that keep them in place. As a result, the market for transactional services will continue to move to non-banks. One need look no further than Square's deal with Starbucks (timely, given Square's announcement today acquiring Evenly for P2P payments) to see how high-tech companies are beginning to encroach on these types of services. And Square is not alone, as the world of web commerce, multi-channel commerce and digital walleting begins to blend high tech and financial services.

So, yes, there's a need for core systems to handle customer information, simple deposits and retail lending or lending-like functionality which is facilitated by core banking solutions in the cloud. These players, however, need not be the sole beneficiaries - as the ability to simplify architecture, reduce cost and improve customer services present innovation opportunities for the banking industry. While cloud does need to be addressed in the context of the regulatory and privacy requirements of the industry - and this is no small question; the larger question is one for the industry, itself: Is the US Banking industry finally ready for Core transformation?

Those that say yes should reap the benefits that reduce efficiency ratios, increase revenues and expand customer relationships significantly.

In the commercial payments space, we're seeing the market focus on the importance of resiliency coupled with a mandate to reduce cost, effort and complexity. We've chosen to take a cloud-based network approach to providing connectivity between corporations and the banks that provide their treasury services. This enables us to reduce the time and cost associated with simply connecting business partners, and focus on innovations that make their relationships more meaningful - liquidity, ForEx, spend analyses and payment services - all of which are a far better use of resources.

You're also correct that the consumer payments space has seen a LOT of activity over the past few years, particularly in the mobile channel. While large retailers and high tech firms have been out front, the role of the banks cannot be understated - for two important reasons: the volumes of data they possess about spending behavior and their unique role in issuing several major credit card platforms and handling the remittance and settlement of funds.

The banks that will win in the consumer payments space will be those who leverage advanced and predictive analytics to understand customer behavior and deliver targeted, personalized offers and real-time offers. Critical to this is building partnerships, not just with retailers, but with technology providers who can help them garner meaningful insight into the performance of advertising and offers. In this space, I like MediaSpectrum (www.mediaspectrum.net) - which has a comprehensive solution for multi-channel advertising and content management.

Thanks, Bryan. I really think it's more about a change in perspective - and looking for economies of scale, than anything else. The regulatory framework that has evolved in the past five years has been focused on understanding and identifying the patterns and behaviors that are indicative of specific risks: fraud, AML, etc. The same data platforms and technologies (heck, the same business processes) can be used to understand and predict the types of customer behavior that are important to growing retail customers, monetizing digital channels and targeting the wealth market. New product offerings, spend analyses, payments & offers - the opportunity to innovate is no longer mutually exclusive from investments in risk mitigation.

what I did not see mentioned here is cyber risk as going forward with all these new innovation and our expectation to improve on how banks continue to keep their consumer's interest on a more cost effective way to making payments.Will consumer venture out on risky payment method? Example of apps on smartphone to make or transfer funds.

I, too, am interested in hearing more about the payments opportunity and the size or type of bank that will be making investments in this area. Also, do you or others think that these investments will be reflected in banks' pricing decisions to their customers?

I think Eric makes a very valid case for big growth in cloud over the next year. The prospect of spending less money on maintenance of legacy IT systems has to be too tantalizing for bank's not to take advantage.

Eric, do you believe the increased availability of core banking solutions in the cloud plus consumer anguish with established banking players could make it easier for startup financial services companies to thrive? It's something I see happening in insurance, and wonder if banks could go the same way.

Interesting article on the impact of technology on banks its customers and employees, technology will help banks serve its customers better . as in the article above the mobile space will see a lot of activity with many banks rolling out mobile payments with the levels of security similar to online . Banks willing to invest in technology such as secure payments and improve the customer experience will be able to retain existing customers and acquire new ones. I work for McGladrey and thereG«÷s a newsletter on our site that discusses a few points here that may interest readers, G«• it offers great advice on retaining and building customer relationships the use of technology and other valuable insights into boosting overall performance @ G«£Eight ways for your financial institution to boost performance now G«• http://bit.ly/1fBWe9u

I'm interested in what Eric has to say about payments. While I agree that "payments is hot" I'll be curious to see what kinds of moves banks make to seize the momentum. In consumer payments, especially related to the emerging mobile channel, it doesn not seem like banks are leading the way; rather, the emerging non-traditional competitors are setting the agenda. And in areas around corporate/large-value payments, I hear more about how the related services risk being commoditized & how the competition in that space is so intense. Someone needs to break out of this pattern.

Your point about the cloud is very true, not just for banking but across all industries. The insurance industry is expecting a boost in cloud computing as well. It makes sense, given the cloud's security and cost-efficiency. With cloud, money saved on hardware could be used to drive innovation.